The Binance story from Forbes – from ICO to multi-billion dollar business


Forbes conducted an investigation into the rise of the world’s largest cryptocurrency exchange, Binance, from its virtually failed ICO in 2017 to large holdings of digital assets.

Support was provided by experts from Gray Wolf Analytics and Inca Digital.

Journalists noted that the platform is currently facing an “existential crisis” due to lawsuits CFTC And SEC, layoffs and refusal of a number of payment companies to cooperate. In their opinion, the greatest difficulty is the reduction in trading activity, which reduced the capitalization of BNB – a key element of the operating model – by 68% of ATH.

Failed ICO?

2017 was a good time for a token sale: during the first half of the year, the market grew fivefold, and hundreds of digital assets appeared. After the Binance management came up with the idea of ​​issuing BNB on June 17 and publishing the white paper the next day, only two weeks passed before the process was completed.

Below is a screenshot of the Binance website (available via web archive) that reveals the token sale roadmap. This information has now been removed.

Data: Forbes.

Exchange founder Changpeng Zhao (CZ) called raising $15 million at 15 cents per BNB a “huge success.” The funds received were used to create a trading platform, and, to a greater extent, for marketing.

According to the white paper, of the 200 million BNB issued, 100 million were distributed as part of the token sale, the rest – among insiders (80 million) and angel investors (20 million).

Binance has pledged to buy back and burn half of the 200 million BNB. Now their value has reached $213, although at their peak they were trading at $675, making Zhao a billionaire with a fortune of $10 billion.

According to an on-chain analysis conducted by Forbes, the picture presented above did not correspond to reality. Instead of 100 million BNB, the exchange managed to distribute only 10.78 million; 20 million were additionally transferred to angel investors. As a result, the platform raised less than $5 million, rather than the stated $15 million, the publication claims.

The problem is not unique to Binance. According to Financial Markets and Portfolio Management, from March 2016 to March 2018, there were 306 ICOs:

  • 45% of issuers retained unsold tokens;
  • the rest were either proportionately distributed to investors or permanently withdrawn from circulation.

Due to the lack of ICO registration, the real picture was not available to market participants.

Where did the unallocated BNB go?

The unsold 65 million BNB was then valued at less than $10 million, now it is ~$14 billion.

The exchange maintains control over the assets, from time to time moving them between 300 different addresses (this is indicated in the CFTC lawsuit challenged by the company). This circumstance led the SEC to accuse Binance of artificially inflating trading volume on the platform. Representatives of the organization called such statements “unfounded.”

According to Forbes, Binance controlled almost 117 million BNB, which is 76% of the total supply as of August 31, 2023. According to experts, the figure also reflects “secret wallets used to store client funds and other corporate purposes.”

Journalists are confident that BNB has become a decisive factor in the emergence of Binance as the dominant platform for trading cryptocurrencies. Maintaining a high value of the utility token became the basis of its success – just as it was relevant for FTX: its FTT was supposed to play the role of the foundation of solvency.

According to now-deleted information on the Binance website (available via web archive), the $15 million ICO took less than three minutes to complete, instead of the three weeks the white paper suggested.

Data: Forbes.

On-chain analysis

According to analysts, after the issue of 200 million BNB from a special deployer wallet, they were initially transferred to an address controlled by the platform and only after that they began to be distributed among ICO participants.

On-chain analysis showed that instead of the stated 120 million BNB, the exchange transferred only 55 million BNB as a result of 13 transactions from July 6 to August 14, 2017.

Experts called it possible, but unlikely, that the platform kept some of the tokens on its balance sheet on behalf of buyers. Binance may have issued derivatives, but this is not a common practice and is not verifiable, journalists pointed out.

Forbes provided an analysis of the main wallets that initially received BNB. Researchers estimate that the number of angel and retail investors during the first full month after the ICO closed was less than 2,000 addresses—10% of the exchange’s 20,000 registered users, according to CZ.

Analysts explained that there is significant duplication, transfers between wallets and mixing of funds between them, making it difficult to determine the exact number of participants in each group.

From the illustration below it follows that from September 2017 to August 2018 there were no transfers from the deployer wallet. You can also see the ~65 million BNB that Binance sent from the deployer wallet to the “Binance 5” address in 2018, which appears to be unsold in the ICO.

There are 99.4 million BNB left in the said wallet, which is half of the total supply. According to the white paper, the organization and its leaders were to own an additional 80 million tokens.

Data: Forbes.

What do analysts say?

“Such discrepancies […] puzzling. Stakeholders and the community are left to speculate about the true nature of the ICO development, the veracity of the reported trading volumes, and the adequacy of consumer protection measures. These unresolved questions highlight the key role of blockchain technology in increasing transparency and accountability in the cryptocurrency ecosystem, where trust is an absolute imperative.” – Gray Wolf analysts said.

According to Inca Digital CEO Adam Zarazinski, the dissemination of misleading information regarding the actual results of the ICO created an overly optimistic view among investors about the future success of the token, leaving Binance “able to maintain an artificially high price of BNB.”

Forbes noted that the Proof-of-Reserves data does not contain the platform’s corporate assets in BNB. Customers’ net holdings in the coin are 30.3 million, backed by 34.5 million BNB, which “is a modest overcollateralization.”

In conclusion, the authors provided the entire list of Binance wallets with BNB:

Data: Forbes.

Addresses allegedly associated with the platform held 63.1 million BNB (~$15.7 billion). Combined with assets in disclosed wallets, this value amounts to 116.9 million BNB (~$27.3 billion).

Data: Forbes.

In 2020, Binance sued the publication over “defamatory statements,” but later withdrew it.

In February 2023, Forbes pointed out platform practices similar to “FTX maneuvers.” Zhao called the article “another FUD-articles.”

Recall that in January, CZ reported that FTX paid an unnamed media outlet $43 million for a negative campaign against Binance.

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